AbstractThe 1993 Education Act introduced a Common Funding Formula (CFF) for grant‐maintained schools. The Department for Education (DFE) proposes to use free school meals entitlement (FSME) as a proxy indicator to allocate money for non‐statemented special educational needs (NSSEN). This paper concentrates on the issue of NSSEN formula funding within the secondary sector. It examines the relative merits of using different proxy indicators and more direct measures of NSSEN. It also investigates the implications and impact on secondary school budgets of moving to a CFF which uses FSME as its NSSEN indicator, and contrasts that with a local education authority's (LEA) actual formula. FSME is shown to be sa poor predictor, at an individual pupil level, of later educational attainment. These proposed changes in funding arrangement will cause significant and arbitrary gains and losses in school budgets which are not related to the numbers of pupils with special educational needs as assessed by more direct measu